Friday, Telsey Advisory Group adjusted its stock price target for Westrock Coffee Co. (NASDAQ: WEST), reducing it to $10.00 from the previous $14.00 while maintaining an Outperform rating. The adjustment follows Westrock's announcement of weaker than expected third-quarter results for 2024 and a revision of its financial outlook for 2024 and 2025.
The company's revised forecast is a response to the persistent challenges in its ground coffee and single-serve segments due to a difficult macroeconomic environment. This has been slightly balanced by favorable developments in its flavors, extracts, and ingredients division.
Moreover, the postponement in the onboarding of a significant customer has led Westrock to delay the commencement of its can and glass production lines in Conway, Arkansas to 2025. This strategy is intended to support a more robust growth trajectory in the second half of 2025.
Westrock now anticipates that the large can production line will begin operations towards the end of the first quarter of 2025, with an additional can line starting in the third quarter of 2025, and a glass line to follow sometime between the third quarter of 2025 and the first quarter of 2026.
These changes, coupled with the tough macro trends, additional scale-up costs, and production delays, have resulted in a reduced adjusted EBITDA guidance for 2024. The new forecast is $50 million, which includes $10 million in scale-up costs for the Conway, AR facility, down from the prior range of $60 million to $65 million.
For the year 2025, the adjusted EBITDA outlook has been revised to a range of $80 million to $100 million, which includes $10 million to $15 million in scale-up costs related to the Conway operations, a significant decrease from the previous forecast of $115 million.
Despite these challenges, Westrock is looking to counteract the headwinds by securing new retail coffee customers, increasing single-serve volumes, restructuring costs, and ramping up production at the Conway facility.
Telsey's analyst acknowledged the disappointment stemming from these softer trends but also expressed understanding that the process of onboarding new customers can be longer and more volatile than initially expected. The firm's continued confidence in Westrock is based on the potential for sales and EBITDA growth once the Conway facility is fully operational.
In other recent news, Westrock Coffee reported a mix of results in their Q2 2024 earnings, with a 7.3% year-over-year decrease in net sales but a 16% rise in consolidated gross profit, and a 21% increase in adjusted EBITDA. The company also expanded its board of directors and appointed Mr. Ken Parent as a Class I director.
Analyst firms Truist Securities and Craig-Hallum initiated coverage on Westrock Coffee with a Buy rating, highlighting the company's potential for significant EBITDA growth in the coming years. In addition, Westrock Coffee has begun commercial operations at its facility in Conway, Arkansas, with full production and sales starting on its multi-serve bottle line.
The company remains optimistic about its market position and future earnings, estimating an annualized adjusted EBITDA run rate of $125 million to $150 million as it exits 2025. These are recent developments for Westrock Coffee, showcasing its strategic moves towards expansion and operational efficiency.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Westrock Coffee Co.'s financial situation, providing context to the challenges and potential opportunities outlined in the article. Despite the company's recent setbacks, InvestingPro Tips suggest that net income is expected to grow this year, and analysts predict the company will be profitable this year. This aligns with Westrock's efforts to counteract current headwinds and the potential for growth once the Conway facility is fully operational.
However, the company's financial metrics reveal some concerns. With a market capitalization of $645.66 million, Westrock is trading at a high Price / Book multiple of 7.92, which could indicate overvaluation. The company's revenue for the last twelve months as of Q2 2024 stood at $835.47 million, with a revenue growth of -5.93% over the same period, reflecting the challenging macroeconomic environment mentioned in the article.
InvestingPro Tips also highlight that Westrock is quickly burning through cash and has a valuation that implies a poor free cash flow yield. This information corroborates the company's decision to delay production lines and revise its financial outlook. On a positive note, liquid assets exceed short-term obligations, which may provide some financial flexibility as Westrock navigates these challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Westrock Coffee Co., providing a deeper understanding of the company's financial health and market position.
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